Back to a Divided Tax System as an 'Ideal Way' for Reinforcing German Federalism in Times of Adequate Financial Aid for East Germany.

One fundamental problem of the German financial revenue system including the horizontal tax redistribution is that financial, planning, and administrative responsibilities for a single public item are often split among different legislative bodies. This had led to a drastic restriction of the Lander (= German states) autonomy. A rigorous change from a joint tax system to a divided tax system with clear assignment of all three responsibilities for each spending item to one administrative level can alleviate this problem and eliminate the power imbalance between the different levels of governments (local, state, federal). After presenting some basic aspects of the German revenue equalization system, proposals for a reform leading to a divided tax system are introduced. A new distribution of spending items and taxes for Germany is developed, which were able to win the necessary political majority in a simulated vote of the second chamber (Bundesrat). In detail it is suggested to assign the joint tasks largely to the states, to designate taxes directly for specific authorities and to repeal permanent federal supplemental payments. Nevertheless, to guarantee adequate financial aid for East Germany, transfers to East German states are set to a new basis.